Debt Help

Debt Help is the stepping stone to debt elimination and financial recovery. When a person is clogged with debts, he requires professional help to get rid of his condition.

(PRWEB) January 19, 2005 -- Debt Help is the stepping stone to debt elimination and financial recovery. Debt help analysis guides you to save thousands of dollars in interest charges. Consolidation of your credit card debts and other unsecured bills will allow you to get out of debt as quickly as possible, save money on interest and late fees, stop creditor harassment, save your good credit rating or begin immediately to repair bad credit or negatives on your credit report.

In a recent survey it was reported that almost 58% clients vouched for Debt Management Plan as the best way to settle their debts. Another 42% client had filed bankruptcy since dropping off a Debt Management Plan or DMP.

Debt Management plans can reduce your monthly payments, interest charges, penalties and some times even the repayment period. Even if bankruptcy seems like your only solution, it may not be the right debt help solution and may cost you for many years to come. The loss of a job, divorce, credit card spending and family medical emergencies among other life style matters can cause negative money issues. Statistics released by the administrative office of U.S. Courts show that a total of 388,864 new non-business bankruptcy filing in the United States during the quarter, ended on September 30, 2004. This included 274,196 chapter 7 filings and 114,454 chapter 13 filings.

Most economists consider a ratio of unsecured debt to annual income of 40-50% percent or more, as being a strong indicator to bankruptcy. This is taken as a 'thumb rule in most of the cases. So in order to protect himself from such crisis one should keep his unsecured debt to annual income ratio lower than 40 to 50%. For example if someone has an annual income of $5000, he should keep his annual debt minimum $2000 to $2500 in order to avoid his bankruptcy.

36% or less: This is a healthy debt load to carry for most people.

37%-42%: Not bad, but starts to restructure your debt now before you get into real trouble.

43%-49%: Financial difficulties are likely to occur unless you take immediate action.

50% or more: Get professional help from debt counselor to aggressively reduce debt.

You should also control from having a large amount of unpaid outstanding credit or using more than 80% of your available credit (which causes a high debt to income ratio). For example , Mr. John is having five credit cards namely A,B,C,D,E having rate of interest 10% per annum . Past due principal amount of those cards are same. But card A and B are of two years old and C, D, E is one year old. So obviously card A and B will carry total interest liability grater than C, D and E due to effect of cumulative interest. So in order to reduce debt, Mr. John should dispose his total income towards repayment of older cards and balance towards new cards.

It is better to have a debt free life without having a savings rather than maintaining debts along with savings. The reason is simple. As the return on short term investment i.e. savings is lower than the interest payable on accumulated debt, it is always advisable to pay the debt first rather than go for the short term investment. Because a repayment of single debt instantaneously may save a lot of money in future. In other word, One dollar payment is better than one dollar saving.

For example, Mr. Right is carrying credit card debt of $10000 (principal) at an interest of 10% per annum. Mr. Right somehow managed to save $10000 for short term investment from his gross income. Town Financial Inc., a financial institution offers him interest on such short term deposit @4% per annum. Now there are two options in the hand of Mr. Right: a) Go for investment or b) Repayment of Debt right now.

Case- A

If Mr. A goes for short term investment, he will receive $10000*4% i.e. $400 at the end of 1st Year. Along with this he has to face the interest burden of $10000*10% i.e. $1000 at the end of same year. Naturally Mr. Clever has to suffer a loss of $1000-$400 = $600.

Case- B

If Mr. A goes for repayment of this debt instead of going for short term investment, he does not to have to pay the interest of $1000. But he will not be entitled to enjoy the interest of $400 on short term investment i.e. at the end of 1st year Mr. Clevers opportunity cost will be $400. Accordingly, his total incremental benefit will be of $1000-$400 = $600.

So it is suggested that Mr. Clever should opt for repayment of his existing debt faster and sooner rather going for short term investment.

Its easy to say spend less than you bring in," but few people really know what that means. Aside from the obvious (i.e. figuring out what you earn and spending less than that), what it means is cutting your variable overhead which means cutting of the like, entertainment, savings cloth bill etc. You may give up cable connection or cell phone. Avoid taking food in restaurant etc. Bring lunch. He suggests that while you're in debt-reduction mode you should avoid TV, magazines and newspapers, so that youre not tempted to make unnecessary purchases. Those may seem like small savings, but they add up quickly to make major amounts. And when you start putting that money toward reducing what you owe, that satisfaction will more than compensate you for the loss.

From the Consumer Debt so published by Federal Reserve Statistical Release, it is found that each and every year total consumer debt (both revolving and non-revolving) has an increasing trend. In 2000 and 2001, total consumer debt has a rising trend by 11.42% and 8.04% with respect to the year 1999.

However, in 2002 and 2003, total consumer debt increased to 4.45% and 4.52% respectively, at a decreasing rate with respect to just previous years total consumer debt. As there is no specific trend in total consumer debt we may conclude that in 2005 also, the total consumer debt will have an increasing trend of 4.49% which signifies that at the end of 2005 total consumer debt will reach about $2109.85 Billion.

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